HKIA P2 Highlights CLK, 2018 Page 1 of 6
Exam 9.00-10.30am Rush MC. 1min x 80
Overview Select SQ questions. Jot down key points
10.30-11.15am Q1 45min x 1
11.15-12.45am Q2-4 45min x 2
Always spend 5min for brainstorming before each SQ. Jot down key points.
When brainstorming, always look up contract glossary and read corresponding clauses
Usually insufficient time for SQ. At least write >3 sentences for every sub-questions.
Use: common, best endeavour, normal practice, unexpected, unavoidable, unforeseen,
unpredictable, duty of care, diligently, reasonable.
It’s normal you don’t know what you’re answering.
Pros and Cons of different contract types??
List of advantages
Gift, loan, fee rewards
Employment, contract
Payment, discharge of loan
Service, Favour, exc. Entertainment
Exercise of any right or power
Offer, undertaking, promise revise again POBO all pages!
Payment 42 days after commencement date
Contract Law of Contract = a branch of civil law (as opposed to criminal law)
Overview
Law of Tort = another branch of civil law, liability is based on the concept of duty of care
(behaviour not fall below the standard of reasonably careful person) not to cause personal
injury or property damage (usually found in case law)
(Question: duty of care for the untamed nature?)
Absence of followings will render a contract void (do not confer legal right under civil law),
voidable (deceived parties when signing?) or unenforceable (without agreement evidence):
Offer and acceptance, consideration, contractual capacity, genuineness of consent (agreed
under free will), form of a contract, legality of object (no illegal purpose)
Contract: must have considerations (right, interest, profit, responsibility undertake),
otherwise
Contract under seal / Deed: may not have considerations.
Contract cannot formed afterwards.
Misrepresentation: untrue statements that caused one party to enter into a contract
- Innocent misrepresentation (didn’t know it was false)
- Negligent misrepresentation (lack of duty of care)
- Fraudulent misrepresentation (knew it was false)
All may render a contract void.
Conditions > Warrenty > Intermediate Terms
Frustration: unforeseeable circumstances that it is impossible to perform a contract
Liquidated damage shall not be penalty, that the amount is not unreasonable compared to
the greatest loss to be suffered.
Limitation of action: Limitation Ordinance limits that no action/litigation can be brought after
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the expiration of 6 years (or 12 years for contract under seal) from the date when the cause
of action accrued, not when the damage is suffered. Therefore, under Law of Contract, the
limitation period begins from issuance of Certificate of Practical Completion, but not from
the time when damage occurs or the defect is discovered. However, in the case of Latent
Defects discovered after the expiration of the limitation period, there could be a cause of
action against the contractor under the tort of negligence. Tort is a civil wrong independent
of (law of) contract. Nonetheless, tort tends to concern losses by physical injury to persons
or property only.
LO also applies to tort? 6/12 years hai breach of contract (workmanship)?
Discrepancies, pre-contract: tender query and reply to all tenderers
Discrepancies
Discrepancies, post-contract (after signing): issue AI to correct discrepancy, variation,
adjust final account.
Arithmetical error: pre-contract: may (but may only) be corrected without affecting contract
sum
Arithmetical error: post-contract (after signing): cannot be corrected, unless agreed by
employer.
Contractor’s obligation: progress and complete the works, indemnities, insurance, submit
claims, etc. (Clause 8-10)
Obligations Employer’s obligations: payment, possession of site, supply instructions, must not interfere
progress.
Architect’s obligations: design and supply information, ensure no unreasonable cost
increase, supervise and inspect periodically the materials and workmanship, to certify
payments fairly (a duty of care)(e.g. proper deduction of defective works from Interim
Payment Certificates)
Clerk of Works: constant supervision on quality of materials and workmanship, sole
inspector, do not give directions to MC, unless confirmed by A, make regular reports to the
architect.
Re-measurement contract: without quantity means difficulty in quoting realistic prices
Cost plus percentage: (% for overhead and profits) for experimental works, contractor may
Contract
inclined to make construction cost as great as possible. No cost-saving incentives. Difficult
Comparison
to predict final cost.
Cost plus fixed fee: incentive for contractor to reduce time. Variations may lead to disputes.
Risk borne by contractor Lump-sum w/o Quantities (Schedule of Rates, risk on
Contractor)
Lump-sum w/ Quantities (Bills of Quantity, risk on QS))
Re-measurement contract (on bills of approx. quantities)
Re-measurement contract (on schedule of prices)
Cost plus fluctuating fee
Design and built
Turnkey (may hire management contractor)
Risk borne by employer Cost plus percentage fee
(2012)
Contract: Monthly Payment : Pros and Cons? For fair evaluation of progress of work by
% work done on site (e.g. builder’s works)
Less incentive to work faster
Better cash flow for contractor
Milestone Payment: Upon completion of milestone.
Pros and Cons? Incentive to work faster
Contractor may have cash flow problem
Higher risk on contractor, may submit higher tender sum
EOT delays payment
In HK, employer tend to transfer risk to contractor. Result: contractor put higher price to
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allow higher contingency factors.
Build-Operate-Transfer (BOT): contractor undertake finance, design, construct and operate
for a period of time by concession from government, before transfer back to the government.
Also available in private sector e.g. Standard Chartered Bank, procure headquarter at no
cost, by a modified BOT scheme.
Provisional Sum = items not yet finalized, to be designed, e.g. signage
Prime Cost Sum = for NSC or NS
Preliminaries = Overhead, profits, temporary works, hoardings…insurance
Tendering Open competitive Tendering:
- Enables new but ambitious contractors to compete with well-established
companies
- Suspicion of favouritism is reduced
- The lowest tender may not result in the most economic project.
- Unscrupulous contractor may cut cost on labour and material at the expense of
quality.
- Late completion due to insufficient fee from heavy competition
- Architects tend to over-design, to compensate possible shortcuts of contractor
- The cost of tendering, in the long run, will fall on the employer again (e.g.
maintenance)
Selective Competitive Tendering
- Higher chance of collusion among tenderers
Negotiated Tendering
- Negotiation without competition beforehand: high fee
- Negotiation after competition: usual.
Liquidated Damages: Government’s equation:
- Daily rate government have to amortise 攤銷 the cost of project over its probable
life period, as fixed rate of interest
- Plus daily supervisory staff costs during delay period
- Increased cost of labour and materials during delay period
LD could be deducted progressively in each interim valuation, or at the Final Certificate
(last chance to deduct)
Insurance: the insured has to disclose facts to claim for an event so the insurer to carry out
its liability (to undertake and pay)
- Cover = extent of protection
- Limit of indemnity = max. amount to be paid as compensation for loss
- Premium = amount to pay to the insurer
- Excess = a sum to be deducted for any claims
- First Party = insures one’s own life, property, loss, injury, damage
- Third Party = insures one’s potential liability in law to pay damages to others
Surety bond: undertake by third-party (bank or insurance company) when a party of the
contract failed to fulfil obligations, no need to disclose too many facts. More ‘save’ than
insurance.
Delay provisions? LD, EOT, Delay Recovery Measures
Financial Implication of EOT? LD, Delay Recovery measures (both involves $)
Cost control at early stage = Preliminary cost study base on CFA/m2
= Base on past project rates x inflation
= During BOQ, the more detailed the tender drawing
The more accurate the estimated cost
Contractor’s liability Injury to persons: sole liability to all, except due to the act or neglect of
employer, or a person whom the employer is responsible
Contractor’s liability for injury or damage to property: only when the negligence, omission
or default of contractor or subcontractors.
Insurance: a form of risk management. It is a two-party contract between the insured and
the insurance company. This contract (insurance policy) assumes a guaranteed promise
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that the insured will be compensated by the insurance company in the case of a covered
loss.
Surety bond: a contract among at least 3 parties. It is issued by one party (the surety) on
behalf of a second party (the principal). This contract guarantees that the second party will
complete an obligation to a third party (obligee). If the obligation is not met, the third party
can recover its losses from that bond. Conditional: depends on arbitration or court ruling
that proves default and only the actual suffering amount. First demand (unconditional):
requires no proof of default, regardless of actual loss. Bond amount = 5-10% of contract
value. Bond: usually purchased by contractor, but included in contract sum. Insurance
companies usually charge 1% of the bond amount per annum as premium.
Oral instructions are also instructions.
AI to follow listed clauses: ordering variations, expenditure of provisional sum (not yet
designed during tender, e.g.signage) /prime cost sum (for NS or NSC), Making good
defects, NSC, NS, removal of debris, date of possession, opening up the Works for
inspection etc.
Retention: employer may draw the fund to execute works MC not carried out, pay for
insurance premium, pay for LD, or pay for other nominated subcontractors.
Upon practical certification, half of retention returns to contractor; upon making-good
defects certificate, the rest of return is returned. In case of NSC or sectional completion,
half of retention of the section of works completed shall be released.
Substantial Completion Certificate: DLP begins, release half of retention, begin period of
final measurement and valuation, end of LD, end of insurance, end of MC’s liability for
typhoon damage.
14 days after expiry of DLP: issue final schedule of defects, contractor to make-good in
reasonably time.
Certificate of Making Good Defects: release the rest of retention, contractor no longer
obliged to return and rectify defects, clearance Final Certificate. (Under law of contract only.
Yet under limitation ordinance, for any breach in complying in contract specifications, still
liable for 6 years / 12 years for contract under seal after Substantial Completion Certificate;
and under law of tort, MC forever owns duty of care for physical injury to person or property),
QS to prepare final account before final certificate (max. 3 months after end of DLP), to
adjust contract sums for contingency, AI, quantities, provisional and pc sum, fluctuations.
Determination procedure: notice, 14days, no improvement, employer within 14 days
determine, by registered post or recorded delivery notice. Note: contractor could also
determine employer, e.g. failure to honour payment, suspension of works, employer
bankruptcy, etc.
Arbitration: note that the decision of the arbitrator is final, no appeal to higher court allowed,
unless if the referene has been misconducted.
SOA client architect 1.7.1: revised design scope = time basis or other agreed payment
method, subject to additional design fee!
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EOT approval grounds.
- Late design change, how to grant? Fair and independent. Impartial, not influenced
by client/consultant. Do not ask client.
- Affects citical path
Professional conduct 4 principals
VO
Contract type comparison
Client-architect new version: competition ordinance
Copyright: before tender, after tender?
Change of architect, what to do?
Competition, what to do?
Lumpsum with BQ = easier to handle VO with BoQ
NSC delay: MC takes responsibility. But if MC opposed to NSC, may claim for EOT
Consequences of certificates
Liability in Contract
-
contractor(MC)=client and so architect has HKIA agreement with MC.
The specialist contractor has a separate contract with MC
-For liability in contract/Agreement, architect would be responsible for the direction and
integration of their design and for general inspection acc to stage F only
-but Not for detailed design or performance of work entrusted to them.
-Besides, the project has been completed which means the contractual liability of all parties
have been discharged.
-No liability in contract
Liability in Tort of Negligence, completely independently of contract (skybook P.29)
-The leakage of water after completion of contract is treated as Latent Defects.
-Under HK’s Limitation Ordinance, legal action can be taken within 6 or 12 years for simple
and special contract (contract under seal) respectively,
from the date the defects first occurred on the building.
-The defect appears only 4 yrs after completion and fall into such period.
-As professional, architect owes the employer/end users a duty of proper care. (sky book
P.47)
-If the leakage occurs due to design negligence, architect is legally liable.
Time is said to be 'set at large' when :
(a) there is no actual completion date stipulated in the Contract;
(b) if the Employer commits an act of prevention which leaves the Contractor unable to
attain the completion date;
(c) the construction contract in question contains no provision to allow an extension of
time to be granted to the Contractor for such a delaying event; or
(d) the construction contract in question contains such a provision but it is found to be
invalid and inapplicable for uncertainty.
The Employer is unable to deduct liquidated damages where time is at large.
- Where time is set at large, the Contractor is required to complete the works within a
“reasonable time”.
- LD clause will be rendered inoperable.
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- The Contractor is still obliged to complete the works within reasonable time.
Preambles = 'notes' to tenderers (somehow similar to specification, yet preambles is
more from surveyor point of view; specification is from a/s/bs point of view)
.
Preliminaries = overheads, profits, insurance, surety bond, overtime, watchman, setting
out
.
Provisional sum = items not yet designed during tender stage, thus exact amount
unknown, e.g. signage, yet an item is reserved under SOR/BQ
.
Prime cost = reserved for NSC/NS
.
Contingencies = overall % for contingencies
